Understanding interest on a bank loan

MrKlank

I borrowed £7,500 recently, at an interest rate of 6.6%. The total amount repayable after 60 months is about £8767, paying back at 146.33 a month.

When i checked my account with the loan, it had taken two lots of £146.33, but also 3 interest payments of £14 and £38 twice. Meaning, as i see it, i've paid nearly £300 off so far, but there's a £90 charge which means i've only paid back £210..?

I worked out that paying the loan back at £146.33 a month over 60 months equals £8767, so i can't figure out why there's also the other interest charges of £14 and £38 x2.

I've spoken at length to the bank, who assure me that whatever happens, i will not be paying back more than the agreed £8767, but they couldn't explain to my understanding why there are the 'extra' interest charges.

I believe them, but i still don't get why there are the £38 per month interest charges. Surely, if i pay £146 a month for 60 months that pays back the loan AND the interest on top, no...?

They also explained that the £38 charge would eventually get lower and lower, as the loan gets paid off, but i still don't see why there is a £38 charge in the first place.

Can anyone explain like i'm 5 what's happening..?

Many thanks!

QrizB

Personal loans don't usually charge the interest separately. Are you sure the interest charges are related to the loan?

Hoenir

Interest will be calculated daily and charged monthly on the outstanding balance.

As the capital balance owed slowly reduces you'll pay less interest. 

Plug your numbers into this calculator. Ignore the $ signs. 

https://www.calculator.net/amortization-calculator.html

teaselMay

Are you seeing the interest charges on the statement of the loan account rather than coming out of your current account?

Dobbibill

What is the current balance on your loan showing on your account? It should show the amount borrowed not the total amount due by the end of the arrangement. 

The link above shows it perfectly.

On a loan you will pay more interest & less capital each month from your payment at the beginning pf the term, than towards the end, due to the interest being calculated daily and charged monthly. 

Exodi

I fear everyone is teaching the OP to suck eggs, when it reads as if the OP has a perfectly good understanding on things.

Running the numbers on £7.5k @ 6.6% I get much the same figures as the OP quotes.

The OP should clearly not be paying additional 'interest' charges of £14 and £38, when the payment amount accounts for interest. The OP seems to understand this also, hence the question.

I would confirm these amounts have actually been taken out of your bank (as opposed to just being pending) or if they are perhaps just showing you the interest that has been charged so far (but not actually separately billing you for it) as @teaselMay mentioned.

£38 is around what the monthly interest element would be on your first few payments - £14 could possibly represent a part payment in the first month (e.g. you first took out finance around the 19th but pay on the 1st).

Who is the lender?

Hoenir

Exodi said:

I fear everyone is teaching the OP to suck eggs, when it reads as if the OP has a perfectly good understanding on things.

There's often a fundamental misunderstanding of how compound interest works and the mechanics of a loan account. Normally the confusion starts with interest being freeloaded which it isn't. Secondly that interest is charged on a level monthly basis over the term of the loan. 

Hence why I provided the calculator that clearly shows how eggs get laid........

Exodi

Hoenir said:

Exodi said:

I fear everyone is teaching the OP to suck eggs, when it reads as if the OP has a perfectly good understanding on things.

There's often a fundamental misunderstanding of how compound interest works and the mechanics of a loan account. Normally the confusion starts with interest being freeloaded which it isn't. Secondly that interest is charged on a level monthly basis over the term of the loan. 

Hence why I provided the calculator that clearly shows how eggs get laid........

Totally understand that and agree that we see a lot of misunderstanding on the points you identify.

But to give credit to the OP, it doesn't sound either of those concepts apply here.

The problem as the OP describes it is that they are paying a monthly amount that includes interest, and separately they are allegedly paying the interest again. This isn't a misunderstanding of how interest works, because they are correct in identifying that that would be incorrect, but either a misinterpretation of the statement, some form of technical error, or something else.

km1500

The OP is correct - £146.33 x 60 = £8767

There should be no extra payments. Go back.to the bank and if necessary complain - don't let it drift.